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In 1965, syndicates at Lloyd's of London reported large losses, sending shock waves through the entire international insurance community.
Headlines read, at that time, "The End Of The Line For Lloyd's," and "Unlimited Liability Must Go." Those doom and gloom projections by editonalists of the 1960s era Fourth Estate are not too dissimilar from what's being written today. The difference is that, following those earlier heavy loss years, Lloyd's emerged stronger than ever, on the verge of some 20 years of profits still to come Moreover its traditions, including unlimited liability, still remained intact.
This time around, however, the large losses that were reported last year ($890 million for the 1988 close--the first losses in two decades) have brought about significantly different results. Earlier this year, a special committee, bowing to the vocal demands of irate investors, recommended to the Lloyd's Council that the concept of unlimited liability be abolished. Moreover, the committee, headed by David Rowland, chairman of the London-based Sedgwick Group, an insurance brokerage, recommended that the corporate world be allowed to become investors at Lloyd's, a privilege previously available only to "individuals."
These proposed changes, which early reports indicate that the Council is ready to accept, are not cosmetic ones. They are traditions that have been jealously guarded by Lloyd's leaders since the market's beginnings more than 300 years ago. Moreover, they come at the end of a long series of changes that have taken place at Lloyd's for the last decade, and so are the last of the major "hallmarks" of the exchange to be relinquished.
The frauds and scandals that plagued the market during the early 80s, while for the most part resolved, have not been forgotten. They led to serious regulatory adjustments at Lloyd's consumer representation on the Lloyd's Council, the separation of broker and underwriter interests, and a more stringent self-regulatory monitoring system within the marketplace. In addition, because of the large losses reported at Lloyd's last year, some "names" (investors in Lloyd's syndicates) have taken the market to court in a first-of-a-kind lawsuit alleging, not fraud but mismanagement of particular syndicates.
That's not all. Lloyd's faces additional losses coming from U.S. long-tail liability exposures and, most recently, from the Bank of Credit and Commerce International (BCCI)...